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RBNZ announcements and US-China talks


The main themes supporting markets were the encouraging headlines around US-China trade talks (including China’s state media), Trump so far avoiding the Government shutdown and some FED members hinting chances for rate hikes this year were slim.

Earlier on the week, the US showed weak retail sales (falling 1.2% MoM, the biggest drop since 2009) which forced US Yields to trade lower and back below 2.70% on the 10-year Treasury.

US and China teams are apparently drafting a “memorandum of understanding” that will act as the base of the agreement to be signed by both Presidents, although the deadline would probably be extended based on recent headlines. More talks will be held in Washington this week between the two heads of trade

The Loonie continued suffering the consequences of poor manufacturing sales numbers, which came in at - 1.3 percent when the forecast was +0.7 percent.

The essential thing to understand is that the support and resistance levels once broken can be used as signals of a reversal or continuation of the trend; for now, the USD/CAD trend is up in the long term.

Even though the Euro recovered on Friday, it was not able to close the week higher following bearish comments from ECB members like France Governor Villeroy, who said the economic slowdown of the Eurozone is “significant” and the ECB might need to change its rates guidance. Another member also discussed the possibility of offering new longer-term loans to banks.

PM Theresa May issued letters to her Conservative Party lawmakers asking them to unite behind her so that she may take a Brexit agreement to Brussels for further talks this week. ON the economic front UK Retail Sales for Jan came stronger than expected, up 1.2%. The question now is if this was just a reflection of the concerted efforts from retailers to push sales against Brexit timeline.

RBA Governor Phillip Lowe is speaking this week and will likely focus on the recent deviation from hawkish to a more neutral bias by Central Banks across the Globe. In the case of Australia, it would be interesting to see if there are other catalysts besides the on-going housing market downturn, China economic downturn, and the gloomy global environment.

This weekend preliminary housing auction results surprised to the upside for Sydney and Melbourne. Nationally, 1400 auctions were held, up from last week but more than 20% down from last year. It seems liquidity is starting to come back a tad.

Keep an eye on the Australian key releases this week including RBA minutes on Tuesday, wages on Wednesday and employment data on Thursday. After the recent tilt to a more neutral stance by the RBA, the market is already pricing rate cuts over the next year.

While the RBNZ was slightly more dovish in its outlook for the official cash rate, it was not as dovish as what markets had expected. Governor Orr added in the press conference that the chance of a rate cut had not increased since the last MPS and said it expected to keep the OCR on hold through until mid-2021 (6 months longer than previously expected).